The law excludes foreign corporate entities or organizations that are corporate entities controlled by Russian corporate entities or citizens from the definition of a "foreign investor"

MOSCOW, May 24. /TASS/. The lower house of Russia’s parliament has passed a government-initiated bill in its third and final reading, which specifies the definitions of a "foreign investor" and "foreign investment."

Effective federal laws and international treaties stipulate additional benefits and guarantees of the rights of foreign investors for making investments in Russia. However, there are instances when foreign investors’ rights are abused by Russian corporate entities and individuals with regard to investment projects, which they actually implement using companies registered abroad, the explanatory note to the document says.

The law excludes foreign corporate entities or organizations that are corporate entities controlled by Russian corporate entities or citizens from the definition of a ‘foreign investor.’ Also, foreign citizens that concurrently hold the Russian citizenship cannot be regarded as foreign investors.

The law also gives the definition of a ‘controlled person.’ According to the law, ‘a controlled person’ is a foreign corporate entity or an organization other than a corporate entity controlled by a Russian citizen and (or) a Russian corporate entity. The bill prescribes the conditions, under which such a citizen or a corporate entity is recognized as a controlling person.

Also, the bill alters the definition of ‘foreign investment,’ defining it as an independent and direct investment of a foreign investor’s own funds. This norm will allow ruling out the instances of investment activity through trust management or other trust institutions, the explanatory note to the document says.

The law "On Subsoil Use" will be amended to prevent spreading the notion of a ‘foreign investor’ to the activity related to the use of subsoil sites for exploring and extracting natural resources at federal deposits.

Amendments for the second reading

According to the amendments introduced for the second reading, the bill stipulates that the Anti-Trust Authority of Russia will issue explanations on the issues of applying the law "On the Procedure of Making Foreign Investments in Businesses of Strategic Importance for Ensuring the Country’s Defense and the State’s Security."

Also, the legislators specified for the second reading the list of persons that are banned from performing transactions resulting in control of businesses that are of strategic importance for ensuring the country’s defense and the state’s security. Besides, the bill specifies the provision that defines the signs of staying under control with regard to a business of strategic importance. The new legislation specifies the list of persons that may not be recognized as the buyers of state and municipal property.

"The proposed amendments to the legislation will help prevent capital outflow from Russia, and also reveal real data on attracting foreign investments to the Russian Federation," the explanatory note to the document says.

The law aims to create an effective mechanism of preventing the practice when Russian corporate entities and citizens get unfounded advantages stipulated for foreign investors, and also fine-tune the investment legislation, the Russian government said.